Syz & Co tempers optimism in Asia

Few capital markets show the wisdom of tempering long-term optimism with short-term pragmatism more than Asia.

That region’s growth path will probably produce attractive long-term returns for investors in bonds, equities and, of course, commodities. But, in the short term, fund flows, less liquid markets, political decisions – in Brussels as well as Beijing – and changeable investor sentiment are likely to provide many ‘bends in the road’.

This might be felt particularly keenly in the world’s second-largest economy, China.

To navigate Greater China, Swiss banking group Syz & Co uses local equities hedge funds to run directional money for its Oyster Multi-Manager Asia product. Some 43% of the €8.1m multi-manager fund is in the region.

In emerging Asia, where portfolio manager José Galeano (pictured) deploys 9.3% of assets, he prefers ETFs and some long-only strategies, to tap into the region’s long-term growth.

Pan-Asian strategies absorb 22.5% of the fund’s assets, and range from computer-driven and credit managers, to equity hedge and multi-strategy.

Of Asia overall, Galeano says: “The easy money has been made. We have seen China cutting rates and we are going through a difficult period. It will be much harder to make money there in the future, and it will be much more about stock picking.”

‘alpha managers’

In his search for “alpha managers” in China, he prefers hedge funds over long-only active management. This is partly because, in contrast to years ago, the hedge fund managers there ‘hedge’ more.

“Before 2008 there were mainly long-biased funds,” Galeano says. “They had a very good know-how in terms of China-listed shares, so they were able to make a difference compared to an ETF. They were better selecting stocks on the long side but they did not short.

“Now, a typical China manager will have 20% to 30% net exposure – so it is a true hedge fund.”

Such flexibility may be helpful if, as Galeano expects, “over the short to medium term, China will be much more volatile”.

Beijing will avoid a ‘hard landing’, he says, “but we have much more serious concerns about China in the longer term”.

He adds: “I do not believe, as many others do, that China will be so powerful and grow like it used to in the past. They have serious issues, such as property and their legal system. China could have very serious issues.